Following General Election Ireland's problems are far from over

The Irish general election last Friday was as apocalyptic as expected, with the once almighty Fianna Fail party decimated and the Fine Gael party taking its place as the biggest party by far in the state.

Journalists are fond of throwing around the word historic, but really there is no other word to describe what has happened. Ninety years of Civil War politics has come to an end.

Fine Gael, the party which grew out of the side that won the Civil War and established the Irish Free State, only to be dumped a few years later, has regained its rightful place as the dominant force in Irish political life.

For decades Fine Gael has been the weaker twin of the pair of parties that emerged from the ashes of the Civil War. Fianna Fail, with its anti-Treaty "republican" ethos and its core demand for the immediate reunification of Ireland, has been a cancer in the Irish body politic ever since de Valera led it to victory in 1932. Since then it has been the dominant political party in Ireland, in power for most of the time. It positioned itself as the only party that was "sound" on the national question.

It seduced a large section of a gullible electorate with a mixture of republican rhetoric and economic opportunism. It tightened its grip on power with favoritism and patronage and became the party of the new rich as well as the small farmer.

Over its long years in government it proved the old maxim that power corrupts. It was that corruption and the greed and laziness bred by its years in power that got us into the economic mess we are in.

Truly Fianna Fail was a cancer, and now it has been cut out by the electorate.

In fact Fianna Fail has been so devastated in this election that it may never recover. We are entering a new era in Ireland. But unfortunately it is going to be an era which will be the most difficult since the foundation of the state.

When the counting is finished -- and it is still going on as this column is being written on Monday night -- Fine Gael looks like ending up with 76 or 77 seats in the Dail (Parliament). It is an extraordinary achievement, but it is at least six seats short of an overall majority.

Half of the 13 or 14 independents that have been elected are of the extreme left variety and would not support a Fine Gael single party government. The rest of the independents would be more realistic about the drastic economic measures that have to be taken and might support a Fine Gael government.

But that government would have a wafer thin majority in the Dail and would be difficult to hold together as we face into the severe cutbacks that need to be implemented.

Fine Gael have ruled out any deals with Sinn Fein (13 or 14 seats) and a deal with the remnants of Fianna Fail (around 20 seats) will not happen either, even if that would make the most sense since they agree on the economic issues.

That leaves the Labor Party, Fine Gael's traditional coalition party. Labor (with around 38 seats) will be the second largest party in the Dail, and with Fine Gael it would form a government with a huge majority.

But whether that government could be a stable one is also in doubt because of the wide divergence on policy between the two parties. Despite that, Fine Gael and Labor began negotiations on Monday about forming a government.

Fine Gael has not ruled out the option of doing a deal with independents, but it seems virtually certain that the next government will be a Fine Gael-Labor coalition.

The biggest issue between them is the approach to tackling our deficit, which means huge cutbacks in state spending and extra taxes. The problem is the ratio between the two.

Fine Gael says that for every extra euro raised in tax there must be a three euro cut in spending. Labor says it should be a one to one adjustment, which would mean a huge jump in our already high taxation levels.

Property and water are two areas where the two strongly disagree. Fine Gael says that there must be water charges, but not a major property tax.

Labor wants heavy taxes on property, but no water charges. The International Monetary Fund (IMF) says we must have both!

A major concern is the difference over the deficit reduction timetable. Fine Gael accepts the EU deadline that we must get the deficit down to 3% by the end of 2014. But Labor wants the deadline pushed out to 2016, which will mean a lot of extra borrowing and a face-off with our EU partners.

Both Fine Gael and Labor want a renegotiation of the EU/IMF bailout deal for Ireland, although Fine Gael is starting to soften the rhetoric and fudge its position as it gets closer to the reality of sitting down with the EU and the IMF for discussions. Labor is still adopting a more threatening stance, but we can expect that to soften in the coming days.

The reality is there will be no substantial change in the bailout, and whatever change there is will have to win the approval of the other EU countries. A slight reduction in the interest rate we are paying has already been signaled by the EU, but that's all we will get.

We like to forget now that when Ireland joined with other EU countries in lending bailout money to Greece we didn't complain about the high interest charges the poor Greeks were having to pay for the funds. Of course that was before we realized we were in an even bigger mess than Greece!

The bottom line is that a Fine Gael-Labor coalition government would mean major compromises on policy, which is the last thing we need right now. What we need is a coherent strategy for getting us through this crisis, not a lot of trade-offs.

For example, a core part of the Fine Gael approach on the deficit is to cut 30,000 state paid jobs, but the state worker unions are the main supporters of the Labor Party. Of course a fudge can be hammered out -- but tough action is what we need, not fudge.

Another example is the Labor Party position on monthly child allowances and free university education, both of which cost us billions and are universal benefits. They are given to everyone, not just to poor families, and we just can't afford that anymore.

Labor also wants to put our minimum wage back up to E8.65 an hour, a level which is 25% higher than in the U.K. Even the present rate, after the recent cut, is 10% higher than the U.K. Again we can't afford this, and it's destroying small businesses here and affecting our ability to compete.

Fine Gael wants immediate and drastic action on these issues and a host of other issues, but Labor has grandiose notions about major investment to expand our way out of the crisis, and that means even more spending. The result will be a cobbled together program for the next government which will be about compromise rather than clear action.

Despite all this, a Fine Gael-Labor coalition government is almost certain to be the next administration here. It will mean a major shift by Labor to accept the cuts in state spending on services, and in particular the cuts in numbers and pay for the vast army of state workers we have who we just can't afford anymore.

One welcome aspect to the end of the campaign is that we won't have to listen anymore to the promises by the parties to create thousands of new jobs here. Fine Gael has been promising to create 100,000 new jobs in the next few years; Labor even more.

I've got news for them. No politician ever created a job unless it was paid for with taxpayers' money. Private businesses create jobs. Even the multinational companies here that the unions criticize create jobs. An enterprise culture creates jobs, not a culture in which politicians pretend that the state has the answer to everything, including job creation.

It would be great to have a few weeks to work all this out. But the Fine Gael and Labor negotiators have days, not weeks.

There are three critical meetings in Europe in the next few weeks, including an EU summit. That means that the program for the next government must be worked out when the Dail reconvenes on Wednesday of next week, so that a new government can be put in place and can begin work without delay.

Because of their rules, the Labor Party must hold a convention to approve a deal, and that is set for this coming weekend. So as I said, the negotiators have just a few days to hammer out a compromise program that is supposed to save us all. It's not ideal.

Meanwhile, doubts continue about whether Fine Gael leader Enda Kenny is up to the job of being taoiseach (prime minister).

In comparison with Brian Cowen or Michael Martin or Richard Bruton or Michael Noonan, he is uncomfortable in any kind of intense interview in which he has to think on his feet rather than just spout a few prepared soundbites. This is particularly true on the economy, and as a result he is still being kept under wraps.

But an indication of how shaky he is came when he was asked in the wake of his victory about telling people the full extent of the economic mess we are in, and how rough the road ahead is going to be.

The taoiseach-elect said that he would not be pulling the wool over anybody's eyes. “The incoming government is not going to leave our people in the dark. Paddy likes to know what the story is,” he said.

That's what he said. If he was New York City Mayor Michael Bloomberg we would be calling for his head.

It's only a small thing, but it's an indication of how clumsy he is under questioning. He struggles for his words and you can see the brain trying to assemble an answer, a bit like George W. Bush.

Of course you don't have to be as articulate as Barack Obama to succeed. But Kenny’s incoherence does not inspire confidence.

He has yet to give an off the cuff explanation of the economic and banking challenges we face and how he intends to meet them. He's not in the same league at all as Cowen or Brian Lenihan -- and look at the mess they got us in!